Ways to Fund a Startup Business
A startup business is a new business that is still developing and not yet generating revenues or profits. Startup businesses often need some form of funding to succeed and grow. However, this can be hard for startups in the early stages of development because they cannot raise enough capital through equity investment, bank loans, etc.
Here are some different options that startups can use to generate the necessary funds to grow, according to educator and startup advisor Jonathan Osler San Francisco:
1. Friends and family: Friends and family members can be a great source of funding for startups in the early stages because they are willing to invest in your business simply because they believe in you. Having someone who believes in your business’ success is important, especially when you do not yet have a track record of success.
2. Venture capital: Venture capital is a form of equity investment attractive to startups because it gives you access to funding that you otherwise might not be able to get. Some startup businesses raise venture capital because they know they do not want to go public because of the expenses involved. Raising venture capital involves entering an equity agreement with an investor, so you will have to give them a portion of your company. It can be beneficial because venture capital investors tend to be very experienced and help guide your startup business or even provide you with resources you could not get elsewhere.
3. Go public: By going public, a startup business is selling shares of stock in the company and becoming owned by the public. That means that the business will have to start making regular financial disclosures to the public, and it will have to pay taxes on its profits. It can be a good way to go if you are interested in raising a large amount of funding to increase your business’ value.
4. Debt financing: Companies can raise money by selling debt securities or debt notes to pay back regular loans over time. This type of financing is similar to venture capital because you sell a portion of your company in exchange for cash. However, debt financing can be easier to get than venture capital because it does not involve an equity agreement.
5. Bootstrapping: Bootstrapping is a strategy that startup businesses can use to avoid raising outside funding for as long as possible. It involves using money from previous funding rounds of the business to generate new funds for the benefit of the business. For example, if you have already used some funds from previous investors to pay back wages, you could use those wages to generate fresh funds to develop a new product.
6. Crowdfunding involves raising the money you need by receiving small sums of money from many investors, usually through an online platform. One advantage of crowdfunding is that it allows startup businesses to create a customer base immediately. It can also allow startup businesses to test their ideas before going public.
Jonathan Osler San Francisco, an entrepreneur and educator said that most of the time, companies must use different funding sources to grow. He added that even if you can find a funding source that works well for your startup business, it is important to remember that you will have to consider the results when making budget decisions.
Always be aware of the risks involved in any funding source because success depends heavily on many factors like competition and the economy.